Market Info

There is a lot of hysteria right now in the real estate market. If you want to cut through all the opinions and see some hard data on what is happening, this post is for you. Below are 5 graphs which help illustrate how the local Oakville market has been changing both by month, year and neighbourhood. The data below shows a trend in the past two months of lower prices, lower sales volumes and higher inventory however if you compare this against data over a longer period of time, you will see that prices and sales volumes are still higher than they were just a few months ago and inventory levels (months of inventory) aren't hugely out of line with historic levels. There is no question the market has softened since it's peak in March. How long it will take to stabilize and get stronger remains to be seen however the trends of the past 2 months show that while things are slower, they are no where near the catastrophe some believe it to be.

Average Annual Sales Values

The average price of an Oakville home is sitting around $1,265,000 in May 2017 (just shy of $1,300,000 YTD). What is most prevalent is the steep uptick in prices since 2015.

Monthly Price Changes

If you have been a homeowner for years then congratulations! If not, then this graph shows just how much prices have increased over the past 10 years. The sharp uptick in prices from January 2016 onwards is certainly not following the trendline. While the market may seem drastic, there is still a significant difference between sales values in May 2017 versus sales values of even fall 2016.

Neighbourhood Sales Volumes

This graph highlights the average sale volumes by Oakville neighbourhood. Keep in mind that volumes are down almost across the board however some areas have been hit harder than others. Some areas have relatively small sales volumes which can swing the percentage amount significantly. If you want to look for buying opportunities, this graph is better looked at over a longer period of time.

YTD Sales Volumes

Overall, most of Oakville is still seeing high levels of sales volumes versus the first 5 months of 2016. The impact of May 2017 may be partially offset by buyers who bought earlier in the year, worried about prices going further out of reach.

Months of Inventory

This graph takes the number of active listings in each area divided by the number of sales to see how quickly homes are selling. Generally speaking, experts will classify anything between 0-4 months inventory as a "Sellers market", 4-5 months of inventory as a "Balanced Market" and 6+ months as a "Buyers Market". Glenorchy, the area north of Dundas street is currently being hit particularly hard with sell through rates which may in part be due to the level of investment activity in the neighbourhood (investors looking to cash out in light of market predictions and/or new market regulations). We have been in a "Sellers Market" for most of the past decade so while things feel very slow right now, the reality is that homes priced right for the current market, are still selling fairly quickly.

Historical Months of Inventory

This graph gives a historical look at months of inventory. Note that the more expensive neighbourhoods of Morrison, Southwest and Old Oakville have historically had longer than average months of inventory.

Trying to figure out where the market is right now? If so, this post is for you. It has been almost two months since the government regulations hit the market. While markets shot up at astronomical rates in the first three months of the year, they have changed immensely in the past month and a half.

Let me start by stressing that the government regulations that came into effect April 22nd were not known to be coming until a week before they hit. For the first 3.5 months of this year, all people heard about was how hot the market had become and the government was very non-committal about what action if any they would take. Ontario’s largest real estate board, the Toronto Real Estate Board or TREB was very vocal that foreign buyers and investors was not an issue, that the real issue was a lack of housing supply. The market is now adjusting to this news as I will highlight below.

Below are the main points of the Ontario Housing Measures announced on April 22nd (skip to the "MY TAKE" section if this is old news to you) :

Biggest Changes:

Provincial Government implemented on April 22nd a non-resident tax of 15% in the Greater Golden Horseshoe Area (this includes Oakville and communities as far as Niagara to Orillia and Peterborough).

Allow certain municipalities including Oakville introduce and implement vacancy taxes (Oakville’s Mayor Rob Burton has been very vocal about wanting to reduce the number of vacant homes held on by property investors)

Invest $125M over 5 years to encourage the development of rental apartment buildings

Give more flexibility for municipalities to fund development through property taxes

MY TAKE:

So what does this mean for Oakville property owners? For most, it means nothing. The fundamentals of the economy are the same, we still have high levels of immigration, a diverse economy, low interest rates and low unemployment. Oakville’s schools continue to rank some of the highest in all of Ontario, we are a hot spot for executives and Millenials looking to grow their family and we are centrally located to accommodate two income families commuting to different parts of the Golden Horseshoe.

However…it is easy to see how these regulations have a large and immediate impact on buyers and sellers currently looking to trade real estate:

1. Buyers and Sellers perception of the market has changed - Newspapers are now talking about “crashes”, economists are discussing “what-if” scenarios if housing declines further. People are generally feeling uneasy and some are completely spooked depending on their risk tolerance.

2. Local Investors are more likely to sell now - If you are an investor, it is easy to understand why you may feel like now is the best time to sell, especially before tax reporting loopholes are cut off. Vacant taxes are a concern (Oakville’s mayor, Rob Burton has been a vocal supporter of a vacancy tax). Rent control measures are also concerning to investors

3. Foreign Investors are also more likely to sell – again to potentially evade new tax reporting measures or perhaps because they are seeing other more lucrative investments.

4. Local and Foreign Investors Not Incentivised to buy - If you are an investor, you are likely waiting on the sidelines to see if further regulations are made and see if the market drops further before buying. If you are a foreign investor your profits just got cut way down and you are also likely sitting on the sidelines.

5. More Home Owners Looking to Cash Out – Some baby boomers feel that the market has hit it’s peak and it is now time to cash out of Oakville

6. General Market Forces Impacting Current Market - Buyers certainly don’t feel the same level of pressure to buy now before prices go up. We also have a timing situation where many buyers who normally would have waited longer to buy, pushed their timing up to the winter/early spring market as they worried they would get outpriced if they waited further. Unlike more balanced markets, where some people buy first, others sell first, for the first 3 months of 2017, almost all chose to buy before selling. We are left with a market where there are many motivated sellers (they need to sell to close on the home they bought in March/April) and not so motivated buyers.

All these market forces combined are putting downward pressure on prices in the near term.

BOTTOM LINE:

Buyers do not like the uncertainty in the market. The incentive to "buy quickly" before prices rise has more or less evaporated in the past two months. Buyers are taking their time and enjoying the higher level of inventory as the wave of incentivised baby boomers and investors cash out of the market.

This does not spell disaster but it does make for a quick swing in home values. Bear in mind that from January-March, housing values went up 34.6% in Oakville. While a 6 week price decrease of 5.4% seems drastic in isolation, it still puts values up 28.4% year to date. The only people who are being unfairly punished in the short term are the relatively tiny pocket of home buyers who purchased in late February to early April of this year. Remember, Oakville home values increased roughly 27% in 2016 and have been up year over year for most of the past TWO DECADES so the overwhelming majority of homeowners have made ridiculously handsome profits on their homes. Heck, we're still up 28.4% Year to Date. Yes, it is horrible for those who bought at the height of the market but underlying market conditions (interest rates, centralized location, supply limitations, high levels of immigration, high ranked schools and diversified economy) are more or less unaffected by the government changes. Once the market responds and absorbs the impact of the housing measures, the market should stabilize once again.

The question remains is now a good time to buy? This depends on how long you think the impact of the government measures will take to work their way through the system. Buying a home is also very dependent on your goals, the type of home you are looking for and the particular neighbourhood you like. Hearing what happened to your friend in Thornhill who is selling her condo is very different than what you will encounter trying to buy a detached home in South Oakville. While friend's experiences and the anecdotal newspaper story or overall GTA statistics may give some directional evidence of what the market is doing, it should never be your primary source of deciding when to buy. For that you need local statistics which I will be exploring in my next blog post. Stay tuned...

March Stats are out and they support the overheated market theory we keep hearing about in the media. Below are some market statistics along with my findings over the past couple weeks.

A flood of new listings hit the market the week after March Break (for those unfamiliar with the area, this is a holiday week for school aged children). Inventory is still tight however there were significantly more listings over the past couple weeks than any other time this year. Historically, this is a normal time for new listings to increase as people hold back from listing until after March Break however this year somehow felt different. As is the norm these days, many of the recent new listings went above list price in multiple offers HOWEVER, for the first time in months, some actually did not sell on their offer night and were subsequently cancelled or relisted the following day (usually at a higher price point as their strategy to list low and sell high didn’t work). In any other market cancelled listings wouldn't be a huge deal, however this is a noticeable shift from recent months which I take as a signal that perhaps the market is starting to show signs of flattening out. Without any statistics, it is way too early to jump to any conclusions however for the first time in months, I am hopeful that the market may be softening every so slightly.

Below is my rationale (all subjective of course):

1. Some of the highly motivated buyers have finally bought and now their homes are starting to get listed. In the past there was more of a balance of people who would buy first, and others who would list first. Given how much more complicated it is to buy these days, more people are choosing to buy first causing even more pressure in January/February/March than usual. Now that some of these people have bought, there is a little less pressure on supply and demand.

2. Buyers are starting to reach their purchasing threshold. After a 27% increase in 2017 and a 35% price increase year to date, buyers simply can't keep raising their offer price. I think many buyers are simply fed up or priced out and taking a break from house hunting.

3. Media reports and government warnings of possible market interventions are causing buyers to pause to see what if any impact possible restrictions will have on the market

4. Demand for housing tends to go down starting in May/June. The abnormally warm winter and media reporting pushed many buyers to purchase earlier than usual.

Are prices heading down? Not that I can see but I will be interested to see April stats to know if the price increases are starting to level off. For now, all we have are March statistics which show the strongest month yet in the market.

March Statistics*

Oakville

Overall Average home prices up 29% (TREB) and 36% (OMDREB) vs a year ago

YTD prices are up 34.6% (OMDREB)

Current average prices are $1,303,010 (TREB) and $1,394,389 (OMDREB)

DetachedAverage home prices up 27.8% (TREB).

Detached average sale price is now $1,626,066 (TREB). RIDICULOUS, I know. Oakville has one of the highest GTA averages for detached homes. The average detached in Oakville costs more than a detached home in the 416 area code of Toronto.

Burlington

Overall Average home prices up 25.7% (TREB) vs a year ago

Current average prices are $870,326 (TREB) and $872,396 (OMDREB)

March Detached Average home prices up 27.8% (TREB).

Detached average sale price is now $1,059,284 (TREB)

*The stats vary depending on the source. Some agents post their listing on the Toronto Board (TREB), some only on the Oakville Board (OMDREB) and some on both so I’m posting both stats here. Burlington March stats include yet another board that hasn’t yet published March results so Burlington stats may vary slightly once RAHB (Burlington Board) issues March numbers. Regardless, it should give you a general sense of the market:

It's interesting to note that the spread between detached sale prices in Oakville and Burlington has been growing year over year. Out of curiosity, I looked at the average sale price in Oakville vs Burlington in 2013. In 2013 it cost just over $200,000 more to buy a home in Oakville. Now that spread is closer to $500,000. You can either see Oakville as being overvalued or Burlington being a bargain. I am interested to see if this gap lessens with time…

I can’t stress enough that prices don’t show signs of going down however I am encouraged by the first signs that the rapid price increases MAY be starting to taper off. I will be watching the market closely this month to see what transpires.

Last week an article was written in the Toronto Star reporting on the competitiveness of the Real Estate market in the Toronto suburbs. This sparked debate among some friends about whether or not the market fundamentals are deteriorating at we are in bubble territory. I thought I would share my response to our discussions below

Question:

Lindsay, do you think Oakville market fundamentals deteriorating to the point we are in bubble territory and if so what is the cause? Are you seeing much property flipping in the area?

I haven’t seen flipping as much as lots and lots of buy and hold investors. Everything I see supports the much reported view that Chinese investors are looking to park money outside China so buying and holding is a better play at the moment. I believe this is having a very large impact in Oakville right now.

It's hard to be conclusive when the real estate industry and the government does not publish who is buying and the reason for the purchase but it is blatantly obvious that forces have changed in Oakville over the past year. Our average price increases since 2008 have been in the 6-12% range annually. Last year we were at 27% and if the first month and a half of this year are any indication, I expect this year will be similar if not higher than last. The fundamental forces have not changed significantly. Immigration, diverse economy, low interest rates and limited supply/land availability have all been fairly consistent since 2008 and can in my mind justify the consistent high single digit, low double digit growth. Mortgage rules have gotten significantly more stringent so you would think that would curb buying. What then is causing the market to go crazy? The big change I can see is foreign investment coupled to a lesser degree with domestic investors. This is a good place to make money but what happens when Australia or the US or China becomes more lucrative?

I don’t closely study the Toronto market but my guess is that foreign buyer focus is shifting to the suburbs. Burlington saw an increase in prices of just over 10% last year so strong but not completely out of whack with prior years. Again without data to back it up, I can say from working there that the pressure from investors was no where near what it was in Oakville.

I question when someone of John Tory’s influence says that market fundamentals are still strong. Because there is no published data on the influence of investors does not mean you can turn a blind eye to its impact on the market. Yes, fundamentals are strong but so is the negative outside influence of investors.

The market rises are still more or less localized to the GTA and surrounding areas so to me the problem should be addressed at the local level. The problem is the municipalities have no incentive to impose controls. Property owners, especially baby boomers are loving the gains. Revenues are up with soaring property assessments and yet municipalities can boast no tax rate increases while they rake in more money. The voting majority is happy while future generations will be hurt. The same goes for the provincial government who just recently reported that deficit projections have gone down significantly due in large part to land transfer tax revenues. In Toronto the city gets the benefit of both rising property tax and land transfer tax revenues.

It's a real problem and this is the first time in my 8+ years in the industry that I am worried that their is an imbalance in the market fundamentals. That said, short term, people stand to make a killing so for many it still makes sense to buy. I realize this mentality just creates more of a bubble with people pushing into the market faster than they otherwise would but on an individual basis it makes sense for many. If I am interested in buying and can afford a home today but am worried the market will increase to the point that I can't comfortably do it a year from now or even 6 months from now, I am incentivised to look now. The majority of the buyers I’m meeting feel the market is still going up in the short to mid term and that they stand to be better off financially if they buy now. If you are living in the home you buy then the process is also emotionally charged. The emotional value of a home can believe it or not still exceed the financial obligation even at todays all time highs. If you can afford the home and can weather mortgage rate increases, then buying now for the long haul still makes sense.

So do I think there is a bubble? Maybe but probably not yet. It depends how many investors are currently in the market. It is the one huge key piece of data we need to be capturing but are not. I honestly cannot for the life of me figure why not.

The vast majority of principal resident home owners have made a lot of money on their home so they probably won't sell off even if prices turn flat or fall. A bubble implies that it can burst at any time and see disastrous consequences. I'm not convinced this is the case in Oakville as despite high investment activity, there are still a whole lot of good fundamentals at play (immigration, lack of land, low interest rates, diverse economy). Plus, where would everyone all go?

What we need to do is prevent investors from creating a market that is influenced only by market returns. As soon as an investment vehicle provides a better return, they are gone. It is imperative we need to curb this influence before it gains too much influence.

It is time for the government to act (both with tracking and publishing investment activity and imposing regulation to curb it). If investment keeps at its current pace then we will reach a point where we are in bubble territory.

For reference, attached is a link to the original Toronto Star article that sparked this conversation. Note I am a TREB (Toronto Real Estate Board Member), was invited to partake in the voluntary IPSOS Reid Poll where the research concluded that only 5% of transactions taking place are from foreign buyers. I won’t go into my rationale here but I believe this number to be artificially low for many reasons.